Being Stingy With Your Equity

It can be tempting to offer shares in your company to finance its growth. These days, there are plenty of investors chasing promising new companies and, in today’s tight labour market, employees are getting more brazen in their demands for equity-based compensation. However, using equity as a form of currency dilutes your position and may not be necessary with a pinch of creativity.

How David Hauser Bootstrapped His Way To a 9-Figure Exit

David Hauser has been an entrepreneur for most of his life. He had a number of small money-making ventures in high school and studied entrepreneurship at Babson College. He started a web design business after graduation, followed by an internet advertising company.

Through his early experiences in entrepreneurship, Hauser discovered that one of the most frustrating parts of starting and growing a small business was acquiring a phone system. Back in the late 1990’s, big companies used a PBX system to route calls throughout a switchboard, but a PBX system was prohibitively expensive for most small companies to acquire and maintain.

Hauser and his friend Siamak Taghaddos imagined a “virtual PBX” which allowed small business owners to leverage the internet to create a phone system without having to buy any of the hardware. They built a crude version of the technology, named their new company GotVMail (later rebranded as Grasshopper), and launched in 2003.

By 2004, they had acquired their first few customers and could see that in order to scale they would need to buy servers and a lot of advertising to drive demand. The venture capital markets were starting to thaw after the dot com bust of 2001 but Hauser chose not to raise venture capital. Instead, they clung to their equity and bootstrapped their little business.

Instead of ordering servers from Dell, Hauser found a local computer company and sold it on his vision for the future. Hauser asked the owner to make a server for him below cost arguing that if Grasshopper achieved its vision, Hauser would soon buy many more. When Howard Stern moved his show to satellite radio, Grasshopper offered to support Stern’s new medium in return for major concessions on the price of a commercial.

Grasshopper also offered discounts if customers paid for a year’s worth of service up front, effectively turning its customers into financiers of the business. Despite its growth from start-up to $30 million in revenue in just 12 years, Hauser was able to retain the majority of the equity in his business, which he sold to Citrix in 2015 for $165 million in cash and $8.6 million in Citrix stock.

As the story of David Hauser illustrates, owners who focus on value building will guard their equity like a greedy child hoarding a bag of Halloween candy. Rather than selling their friends and family cheap shares or giving every new employee options, they use other forms of financing to start and grow their business.

Rather than thinking of your shares as a currency to distribute lavishly, consider your stock as the essential ingredient to building value.


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You’ve Received an Unsolicited Offer to Buy Your Business — Now What?

Article written by Ari Fuchs of The DAK Group and provided courtesy of

Nearly 1 in 3 business owners report receiving an unsolicited offer to buy their business in the prior twelve-month period. If someone approached you with an offer to buy your business, would you know what to do? You’ve probably said to someone, or thought, something along the lines of “my business isn’t for sale, but for the right price I’d consider it.”

You may be flattered because the number may be higher than you imagined, and you may respond positively. But how do you know for sure? Even if your first reaction is a resounding “yes,” and you want to start the process, is that the prudent approach? It’s unlikely that you would ever make a decision about your business with information from only one source.

There are a number of questions to consider. What is your business worth? What is the right price for my business? What are similar businesses selling for? Could there be other interested buyers out there? How do you negotiate a better deal? What kind of partner will this company be? What do I want out of my business anyway at this point?

Business owners will be tempted to begin the process on their own for many reasons.. It’s certainly do-able to take the DIY approach. But the primary risk associated with going it alone is that you get in over your head in a short period of time. A sale process is a substantial undertaking which can often be overly distracting to the ongoing growth and success of your business. What is likely the largest financial decision of your life is not a time to learn on the fly. Often the acquirer has gone through the process many times – they are perhaps experts at doing deals and sometimes speak a different language than the business owner. It is for these reasons that a business owner might consider assembling a team of experienced advisors to assist throughout the process and to help evaluate the situation. Usually, this team is composed of an M&A advisor, your lawyer, your accountant, and possibly a wealth manager.

If you decide to assemble a deal team to help you with the process, here are four things your team of advisors will help you with:

1. Figuring out if the offer is fair and reasonable

Your M&A professional should be able to help you understand the value of your business and consequently whether the offer you received is fair and reasonable. The specifics of your business can really impact its value, making it important for you to understand the way an investor is evaluating your company’s worth. If the acquirer is strategic, then you need to understand how your business will impact the value of their business to negotiate the highest possible purchase price and most favorable terms. Even if an initial offer is deemed fair and reasonable, your investment banker should help you maintain the upper hand and push a buyer to give you the best value and terms by threatening or even proceeding to create a competitive bid process. The presence (or even threat) of another buyer may push the acquirer to adjust their offer.

2. Managing the flow of due diligence information

It’s important to employ good judgment about what information you share. How can the information be best positioned to amplify the strengths of my business? At what stage should you be sharing sensitive competitive information about customers and employees? The answers to these questions can have serious implications on how a buyer views and values the business.

3. Negotiation technique and approach

Repeat corporate or private equity buyers are generally experienced negotiators. How can you ensure that you’re not being out-negotiated and leaving money on the table? This is where high quality M&A advisors can earn their fee. The banker can also play the role of bad cop when you need to be insulated from a difficult negotiation point to ensure that you preserve the principal-to-principal relationship with the buyer. This is particularly relevant if you expect to play an ongoing role in the management of your business post-closing.

4. Allow you to focus more time on running the business.

Selling your business is time consuming for a business owner even when they have a good deal team supporting them. Without a deal team, it can become all consuming. Having the capacity to focus your time on running your business during a sale process better ensures the likelihood of a closed transaction. When businesses underperform during a period of scrutiny like this, it can break the deal.

The sale process — from negotiating and accepting an offer, getting through due diligence, and finally closing — has its ups and downs. You can benefit from experienced advisors in the process to act as a sounding board and to provide you with coaching and recommendations throughout the process.

Whether you are considering selling your business now or at some point in the future, you should always be prepared for that phone call and have a plan for how you will respond. Understand the value of your business in today’s market. Be aware of what enhances or detracts from the value of your business. Work with advisors who are knowledgeable and can help you navigate through the process of qualifying and validating a buyer.

You have invested years, possibly decades of your life building a successful business. When the time comes to sell the business, being prepared matters.


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The Fatal 5 Reasons Why Your Business Won’t Sell

By Ryan Jorden, VR Business Brokers – Managing Partner

You’ve been thinking about selling your business for a while and now you’re finally ready to pursue a sale. But is your business prepared to withstand the scrutiny of a buyer and their professional advisors? If you haven’t been through this process before, then you may be unaware of some issues present in your business that a savvy entrepreneur is looking out for and seeking to avoid. These barriers to selling will undoubtedly show themselves during a buyer’s due diligence and likely derail your deal. So let’s take a look at some of the common issues that arise so you can start working on them in order to maximize your value in a successful sale.

1. You aren’t mentally prepared for the process

You thought you were ready, but now that you’re discussing it in depth with your trusted broker you realize that you have no plan for your life after the sale. Your identity and self-worth are very closely wrapped up in your business, or perhaps you’ve worked so hard at growing your business that you simply didn’t have much room for a social life or hobbies. What are you going to do with all of that free time? The great unknown looms large and you’re getting cold feet at the prospect of reinventing yourself.

This is an opportunity to draw up some goals and gain a clearer understanding of how your life will change and benefit from the sale of your business. Maybe you desire to spend more quality time with your spouse or grandchildren, finally enjoy some uninterrupted holidays, or pursue a completely different business venture. Write it all down and start filling in the blanks until you feel it becoming tangible. Because it’s crucial that you’re fully committed to the transition both emotionally and mentally.

If you’re on the fence, then your business will suffer in the meantime, your broker will get frustrated trying to drag you along and any buyer you meet is going to confuse your reluctance of selling with disapproval of them.

2. You have unrealistic expectations of the timeline required

If you thought you could walk away six months after the day you decided to sell, the reality is going to be a difficult adjustment to make. Especially if you’re already mentally burned out or suffering from health issues. It’s better that you know now what it all entails so you can realistically prepare yourself to do what it takes to ensure a successful transition.

So how long does it take to sell your business through a brokerage? On average you’re looking at nine to twelve months to locate a suitable buyer, however, some businesses may even take up to two or three years. The length of time will often depend upon the type of business you have, how much financing you’re willing to extend, whether or not your price is market friendly and who you’re using to represent your business for sale.

It may also take a couple of years of pre-sale planning to resolve ignored or unknown issues or to implement a tax friendly strategy. And depending on your business, you may be required to stick around for one or two years to play a key role in the transition.

The best advice I can give anyone is to start planning your exit today, regardless of when you think you’re going to sell.

3. You don’t have the documentation required

You have to be prepared to disclose a fair amount of information to a serious buyer in order for them to gain the confidence required to move forward. I’ve had numerous business owners approach me over the years with a request to help them sell their business, however they weren’t even willing to share their financials with me. I simply won’t allow a buyer to potentially risk their life’s savings on a mystery box, so these are business owners I will not work with.

What are the basics you should start getting ready today? In addition to a copy of the lease, current inventory status, itemized list of furniture, fixtures & equipment, you will also require accountant prepared financials for the past 3 to 5 years. A serious buyer needs to understand the revenues and expenses of a business, as does their accountant and lender. Not having accountant prepared financials will unnecessarily introduce a level of risk to the buyer that makes it impossible for a business to sell.

The more detailed and confidential information such as client lists and existing business contracts aren’t made available until the period of due diligence after an accepted offer is in place, however, you need to have it ready to go. Delays will kill your deal by eroding the confidence of your prospective buyer while also giving them time to find another option.

The bottom line is don’t expect a buyer to simply take your word for anything, they’re going to require proof.

4. You have internal issues that haven’t been fixed

The buyer of your business isn’t going to pay you top dollar if they have to come in and sort out a mess. They want to be able to plug themselves or a manager in and start immediately growing the business.

Common issues we encounter are inventory management concerns, missing or outdated systems & processes, decreasing revenue, poor earnings, a cash component that’s throwing off the expense to revenue ratios, a missing safety program, or the lack of key staff in place that can assist the new owner after your departure. If you’re doing three roles and all of your customer relationships are with you personally, get a manager in place and train your customers to call the business instead of your cell.

These are all matters that can be fixed, however, they can take a varying degree of time to address and correct. Make a list of all your known issues and start working on it. You may also want to consider hiring a small business consultant or contract CFO who can discover additional unknowns and assist you in improving them.

5. You are asking too much

An ill-informed expectation of value is going to cause you frustration as you watch buyer after buyer pass you by. Since they’re primarily purchasing your cash flow, the package it comes in is often less important to many buyers than the payback period, risk and ROI. An experienced entrepreneur won’t pay for your location, client base or name recognition if it’s not translating into profit.

Get a professional business valuation completed immediately so you can set your expectations of fair market value. This will also help your broker in establishing and justifying the value of your business to a buyer, their accountant and the bank.

If you’re asking too much then you’re not going to sell, and if you’re asking too little then you’re cutting yourself short and leaving good money on the table.

If you’re thinking of selling your small business, we would be pleased to answer your questions and assist you with starting this process. Let us put our expertise to work for you!


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When Does an MBO Make Sense?

Article written by Danielle Fugazy and provided courtesy of

KLH Capital is a lower middle market private equity firm that specializes in making three types of investments: management buyouts (MBOs), recapitalizations, and family/generational successions. Founded in 2005, KLH has completed over 35 platform investments. Axial’s Middle Market Review sat down with James Darnell, a partner with the Tampa, Florida-based firm, to talk about when and why MBOs make sense for sellers and buyers, and other types of transactions that are happening in the lower middle market today.

What is a management buyout?
An MBO is a fancy term that private equity guys like to use to describe a situation when the management team that is currently running a business buys out some or all of the business’s existing shareholders, and in the process obtains some ownership in the company for themselves.

MBOs are really effective for management teams who have created a lot of value in the business and established themselves as the leadership of the company. These teams already understand their customer base and their market, and have demonstrated successful leadership skills. They make for good owners! They have created a great business, but they haven’t been able to fully enjoy the financial benefits as they aren’t owners themselves. To complete an MBO, the management team works with a private equity firm like ours to facilitate a liquidity event for the current shareholder(s), and through that transaction, the management becomes shareholders themselves, alongside us.

What are the advantages of completing an MBO?
The shareholder(s) who are selling the business or realizing liquidity are able to get fair market value for their business and ensure the company remains in the hands of people they already know and trust. Sellers also often feel they have done the right thing by both their employees and management teams when they sell to management.

For the new private equity investors, MBOs are a chance to invest in a deal that has a lower amount of risk than a typical deal because they are backing an incumbent management team that has already demonstrated they can lead that particular company. Lower risk for an investor is always a good thing.

The managers that are participating get ownership in the business going forward. They also continue to run and grow the business as they have been. Because of this ownership event, employees are usually happy and remain motivated. Employees’ biggest fear when there is a sale is that the new owners will try to steal the business or change the culture of a company. In the case of an MBO, management and employees should already share the same vision and values.

Are MBOs a popular strategy today?
There are many baby boomers who have enjoyed the growth of their businesses and would like to pursue retirement. The MBO option allows sellers to do something a little different from a regular sale or a recap. With a traditional recap, sellers will receive partial liquidity, but likely be asked to stick around for three or four years and then get a second bite at the apple. For business owners who want to step back, an MBO will speed up that process.

How does an MBO differ from an Employee Stock Option Plan (ESOP)?
With an MBO, the business owner is going to be able to realize more of the business’s value in cash immediately and can direct specific ownership amounts to key employees. With an ESOP, the seller will carry a note that pays out over time and they will likely need to personally guarantee the third-party financing to bond them to the business. An MBO is a clean break at full valuation.

How does KLH find businesses that want to participate in MBOs?
We find our business through a network of referral sources that we have developed over 15+ years. We network on a daily basis and help business owners understand their liquidity options and how private equity can play a part in their growth strategy or financial stability, or how we can help address any financial problems they may have.

Recaps are a big part of your business. When does it make sense to do a recap?
We frequently invest in recap transactions. In fact, we do more recaps than MBOs. They are similar transactions. The question is how involved the seller wants to be going forward? If you have an owner who is in full control, it’s hard to do a management buyout if there isn’t a management team to step in. If the seller can totally remove themselves, then an MBO may be a viable path for the seller to cash out fully.

How do generational transitions differ from recapitalizations and MBOs?
They are similar to both MBOs and recaps. Generational transitions happen when a younger generation of a family business wants to take over from prior generation(s). Often, the younger generation doesn’t want to mortgage the company to put all the money in the prior generation’s pockets. Additionally, it’s very hard for families to navigate the trickier parts of these types of transactions, like the equity and debt raises and the risk allocation between the “buyers” and “sellers.” It’s too personal and familial relationships are more important. A third party can usually provide the liquidity and help get the transaction completed on a more arms-length basis.


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A Tale of Two Franchisors and Their Resale Process

Our Dallas, TX office recently engaged two different franchise brands for reselling existing locations within the respective franchise systems. The franchise brands are from completely different industries, but have the following common characteristics:

  • Both franchisors have been in business for over 30 years.
  • Both franchisors have a history of incredible growth in number of units as well as average unit volume.
  • Both franchisors are well-respected brands – having many times over the past several years been designated as the leader in their respective business categories by a variety of franchise ranking publications.

This is about where the similarities end! During the engagement process we became familiar with each franchisor’s procedures and personnel that support the franchisees in executing their exit strategies. And, the differences couldn’t be more pronounced!

Franchisor A

  • Provides franchisees with a “Resale Manual”, which guides the franchisee through the resale process, including checklists for Buyers and Sellers.
  • Has specific qualification requirements for buyers that are clear to everyone involved in the process.
  • Offers franchisees guidance on their business valuation using historical data from actual past transactions within the franchise system.
  • Advises the franchisee on any décor or system upgrades that will be required during the resale process.
  • Assists franchisees with marketing their resale opportunity through relationships with 3rd party business brokerage firms.
  • Speaks directly with prospective buyers early in the process to reinforce the benefits of the brand and guide the potential buyer through the franchisor resale procedures.
  • Will convert potential “new franchise prospects” to a resale opportunity if the resale characteristics are of interest to the buyer.
  • Offers educational classes for franchisees regarding Exit Strategy Planning at their annual conventions.
  • Provides flexibility with regards to training deadlines and timelines for both buyer and seller to ensure timeliness in concluding a transaction.
  • Provides buyer and seller with template agreements (LOI and Purchase Agreement) to streamline negotiations, but with clarification that both parties should secure the appropriate legal advice.
  • Assigns specific corporate personnel to assist franchisees throughout the process. Executive personnel available for additional consultation.
  • Brokers have easy access to corporate personnel to address any issues during the process – reinforcing that the goal is to find a qualified buyer and support the exiting franchisee’s desire to sell and achieve a reasonable return on their investment.

Franchisor B

  • No guidance was offered directly by franchisor, only to emphasize their right to approve any transfer of the franchise.
  • Uses the “Area Developer” system to support the “local” franchisee resale process. The franchisor did not want to assess or communicate with a prospective buyer until such time as the buyer had completed a review process with the Area Developer, and a Purchase Agreement was fully executed between buyer and seller.
  • The developer would only communicate with the franchisee, not a broker. A buyer candidate could not meet the area developer prior to a one-time per month educational “seminar” regarding the franchise system.
  • Prospective buyers were told that décor and equipment upgrade requirements would be enforced at some point in the very foreseeable future. However, various prospective buyers over a six-month period were told of costs ranging from $15,000 to $80,000 for the upgrades – with the stipulation that the upgrade requirements were still not final! Advertised costs to open a new franchise location range from a low investment of $100,500!
  • It could take 3 – 6 months, as quoted by the area developer, for a potential buyer to be vetted and officially approved by the franchisor, at which time the buyer would still need to complete the franchisor training program prior to closing on the transaction.

Our experience in working with Franchisor B was extremely frustrating. We submitted five candidates for approval that had agreed terms with the seller. Four of the five candidates were not approved by the area developer – with no reason given for any of the four declines. One candidate had a net worth in excess of $5M, and all candidates exceeded the financial requirements for “new” franchisees as advertised by the franchisor. Two of the candidates had previous food industry experience, which happened to be the industry involved. The 5th candidate decided to terminate the transaction due to delays in the approval process. All five of the candidates were disappointed in the process, and now have a negative view of the brand. I doubt seriously they will ever be customers of the brand in the future.

During this same time period we concluded multiple transactions with Franchisor A. We submitted only one buyer candidate that was not approved by the franchisor – the finances were simply too tight for the franchisor to have comfort with the deal, and the candidate was appreciative of the professionalism shown during the review. I think it is safe to say the candidate will continue to be a fan of the brand and may at some time in the future be a viable buyer.

Now for the interesting part! Over the last 4 years, the franchisors have experienced very different results in the evolution of their business models.

Franchisor A

The total number of domestic stores operating at the end of calendar year 2018 indicates a net growth of 21% over a four-year period. The total network wide revenue increased 23% during the same four-year period.

Franchisor B

Total number of domestic stores operating at the end of calendar year 2018 indicates a net decline of -4% during the same four-year period. The total network wide revenue declined -5% during the same four-year period.


There can be any number of reasons why one franchisor achieves continued growth while another experience decline. I’m not suggesting that the franchise resale process is the sole reason! However, based on our experience it certainly doesn’t surprise me to see the results of these two brands.

Franchisors often use cliché terms like “We want the franchise sale to be a win – win”, or “Be in business for yourself but not by yourself”. Some franchisors validate these sentiments by the way they support their franchisees in every aspect of their business life. Unfortunately, other franchisors do damage not only to their brand but to the entire franchise industry by not living up to the very talking points by which they sell new franchises. And, selling new franchises is all some franchisors are interested in, rather than also assisting franchisees with a smooth and satisfying exit from the brand after many years of brand ownership.

Assisting franchisees with a franchise resale is the right thing to do, but also the smart thing to do. Assistance will likely result in higher resale values, which will help validate the business model for those buyers considering opening a new franchise. It’s also beneficial at times to have new energy enter the franchise brand. And often, a new owner is needed to turn a struggling location into a successful one.

Perhaps franchisors should live by the credo of “assisting a franchisee to be as happy with the franchise brand on the day they exit the business as they day they purchased the business”.


About the Author
Larry Lane is the owner of VR Business Brokers of Dallas, TX, which is part of the worldwide franchisor organization that has been servicing small to medium size privately held companies since 1979. Larry spent 21 years as an executive with FASTSIGNS International. During his tenure the company grew from 15 stores to 540 stores operating in six countries. Larry has been a franchisee in the VR Business Brokers network for the last 10 years. For more information about VR Business Brokers of Dallas, please call 214-733-8282, email or visit


Run Your Private Company Like It’s Public

Small businesses often operate as if their sole purpose is to fund the owner’s lifestyle, but the most valuable companies are run with financial rigor. You may be years from wanting to sell, but starting to formalize your operations now will help you predict the future of your business. Then, when it does come time to sell, you’ll fetch more for what you’ve built because acquirers pay the most for companies when they are less risky. There’s nothing that gives a buyer more confidence than clean books and proper record keeping.

Jay Steinfeld is a great example of how to run a business like a public company. Steinfeld studied Accounting at the University of Texas and joined KPMG after college. His wife owned a small retail store selling blinds and window treatments. The store was successful, but by 1994, Steinfeld had noticed a little Seattle-based outfit that was trying to hawk books online. This company with the peculiar name “” started to succeed in selling books online and Steinfeld wondered if he could get consumers to buy blinds online.

Soon after, was born.

Unlike many of the first-generation online companies that were run with little financial controls, Steinfeld grew like an accountant. He was determined to run his business with the same rigor as a publicly listed company. He built an experienced management team and took the unusual step of assembling an outside board of directors even though was private and Steinfeld owned all of the stock.

The board met quarterly and each of Steinfeld’s senior managers were asked to prepare and deliver formal presentations to his board. Steinfeld hired a big four firm to complete a full audit of his financials each year even though all he needed to satisfy Uncle Sam was a simple tax return.

By 2014, had grown to 175 employees and, at more than $100 million in revenue, was the largest online retailer of blinds in America. Even though Home Depot had close to $90 billion in sales at the time, was outperforming them in its tiny niche, which – coupled with their fastidious bookkeeping — made absolutely irresistible to Home Depot. On January 23, 2014, Home Depot announced its acquisition of

Running your business like it’s public will make it more predictable as you grow and ultimately a whole lot more attractive when it comes time to sell.


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5 M&A Advisors on What Sellers Worry About Most

Article written by Meghan Daniels  and provided courtesy of

Selling a business is a big decision, and a little anxiety about the process is normal. We asked five M&A advisors about the biggest concerns they hear from clients.

What’s the top concern you hear from prospective sellers, and what’s your advice?

Dexter Braff,  The Braff Group

Once we get past price and terms, the “softer” elements of the deal become more meaningful. Will the buyer retain most of my employees? Will they carry on the legacy of the business? If the seller is not retiring, how restrictive will the covenants not to compete be? How long will the seller be on the hook for any post-deal issues that are covered by indemnification language?

Depending on just how important these, or any other items, are to a seller, they may choose to incorporate language addressing them at the letter of intent stage, before due diligence and crafting the definitive purchase agreement. That said, sellers should take care not to add so many provisions such that letters of intent become de facto purchase agreements, less they slow the momentum down or frustrate the buyer. Better to address the “want-to-haves” (as opposed to the “have-to-haves”) later on in the process, when the buyer becomes more invested in the transaction and may be just a bit more accommodating to insure a successful close.

Robert Rough,  Telos Capital Advisors

We had a big increase in inquiries about selling in Q4 2018 when the public markets fell off, there was lots of talk of recession, and trade tariffs were a big item. Prospective sellers were concerned that they had missed “the top”. In general, prospective sellers’ biggest concern seems to be leaving money on the table by selling too early. We counsel our prospective clients against trying to time the market, especially since it takes so long to close a transaction once you begin the process. Buyers are generally pretty smart; if you wait until the market in your industry has peaked or a recession has begun, you probably waited too long. Buyers will price the uncertainty of the depth and length of the trough into their bids, if they even bid at all.

Sellers should sell when the market is good, their business is solid, and potential buyers can still envision some upside.

Allie Taylor, Orange Kiwi

The list of concerns varies widely, but often includes things like “will I get a fair enterprise value”, “what will I do after I sell”, “how do I avoid paying too much tax”, “will I have enough money to do what I want”, “are the multiples really the highest they will get or should I wait”, “who do I trust, my CPA, attorney, wealth and asset manager, coach…”, “how do I resolve competing advice”… and the list goes on.  What owners that have achieved successful transactions (meaning they are happy 12 months later) ask is, “How do I get the transaction I really want?”

No matter what the concern, my advice is often the same: a) the presenting concern is rarely the real issue holding an owner back from successfully selling their business; b) achieving a successful transaction depends on the owner’s ability to  conquer their own psychology  so that it does not get used against them; c) this requires owners engage in creating clarity about what they do and do not want for 22 variables in 3 domains (business, money, and self). This understanding increases the owner’s control of their exit and enables them to avoid making compromises they later regret.

Keith Dee,  Osage Advisors

“What is the value of my company in today’s market as I am constantly getting calls from people looking to buy my business?”

Our advice to them is that after running your company for 10, 20, 30, or more years, you owe to yourself to test the market when you are ready to sell. By hiring an investment banker who will run a controlled auction process for your business, potential buyers will competitively bid for your company and set the current market price. The business owner will then have options to choose who he thinks the best buyer is for his business based on several factors including price, culture, what’s best for his/her employees, and the legacy of the company

Steve Raymond,  The DAK Group

Sellers are constantly asking us questions like: When is the “best” time to sell my business? It seems that we are in a seller’s market now; should I put my toe in the water now or should I wait to generate stronger revenue or profitability? Am I leaving money on the table not selling now?

All businesses are unique, and the market for them is just as unique.  When selling a business, an owner has to consider a myriad of issues. Valuation, while important, is not the only consideration. Owners need to consider not only what is best for themselves, but also for the business. Think carefully through the implications of a sale, both to the owner and the business.  This exercise will allow the owner to prioritize what is most important. Allow these priorities to set the timing and the potential targets in a sale process. An owner is more likely to develop a successful outcome when success is defined at the front end.


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Timing the Sale of Your Business

by Peter C. King, VR Business Brokers/Mergers & Acquisitions, CEO

In a perfect world, business owners sell their companies when banks are anxious to lend, the economy is strong, their industry is booming and the business is enjoying record profitability, with the future looking even brighter. Naturally, a perfect convergence of all these variables would enable you to maximize the value of your business allowing you to sell it at the highest price and on the best terms.

But most business owners don’t sell when market conditions are perfect. Instead, they make the decision for more personal reasons, such as retirement or to free up cash to pursue other investment opportunities. Unfortunately, many businesses are sold when the owner dies unexpectedly or is otherwise unable to run the business. These unplanned events increase the chance that the business will realize a lower selling price than it would in better circumstances.


Before you make the decision to sell, you need to ask yourself several questions. First, how motivated are you to sell? Selling a business is an arduous process that can take a year or more from the initial valuation to finding a buyer to finalizing the deal.

Second, have you adequately prepared your business to be sold? Most experts agree that owners should plan for the sale of their business at least three years in advance. You may even want to plan for an eventual sale as you’re still establishing and building your business.

But even if you have no current plans to sell, managing your company as if it will be sold is likely to result in a more efficient, financially viable business. For example, your business plan whether a formal or informal document should evaluate growth opportunities, market position, and business goals, and explain how progress in reaching these goals will be measured. Not only is your business plan an important tool in unlocking the current value in your company, but it also serves as initial prospectus for prospective buyers.


Keeping an eye on economic cycles and how they affect the merger and acquisition market is important. The market for privately owned companies can be just cyclical as that for publicly traded companies. Economic recessions, for example, generally mean there are fewer buyers. General economic weakness can also result in a drop in your business’s profitability and a perception among buyers that your business is a risky acquisition.

Also be aware of your business’s growth cycle and plan to sell when sales growth has reached a peak. Of course, this isn’t always easy to calculate, and typically requires the help of outside advisors. Further, you are better positioned to sell if your company boasts valuable patents, brands, proprietary products or a lucrative market niche.

Businesses are typically valued on a multiple of earnings. Your business’s earnings, therefore, must be transparent and documented. Many deals are funded with bank debt, and most lenders won’t finance a transaction without stable cash flows that can be verified through solid financial statements. Buyers also usually look for breadth of management because it reduces the company’s dependence on the departing owner and allows the buyer to learn the business from an experienced management team.

There are also a number of relatively minor things you can do to enhance the perceived value of your company and make it more attractive to purchasers. Cleaning up and organizing the office, factory and warehouse space is an inexpensive enhancement. Repairing or replacing equipment may cost a bit more, but will help you attract buyers seeking a turnkey operation. Finally, consider disposing of unproductive assets or old inventory that buyers don’t want to be burdened with.


Selling your business can be time-consuming a complex process, but you’re likely to maximize your selling price by planning the event well in advance and by engaging qualified advisors to assist you. While a deal can often be put together quickly, maximizing value means that selling your business may take time. Remember, you don’t want to feel pressured to take the first offer, or to accept terms that are less favorable.


Is now the time to consider selling your business?

Complete the “Value Builder” questionnaire today in just 13 minutes and we’ll send you a 27-page custom report assessing how well your business is positioned for selling. Take the test now:

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Why You Should Exit While You’re Ahead – A Cautionary Tale

The very best time to sell your business is when someone wants to buy it. While it can be tempting to continue to grow your business forever – particularly when things are going well — that decision comes with a significant downside.

Take a look at the story of Rand Fishkin who started his entrepreneurial journey when he joined his mother’s marketing agency as a partner:

When Fishkin realized how much his Mom’s customers were struggling to get Google to display their company in a search, he immersed himself in the emerging field of Search Engine Optimization (SEO).

He began writing a blog called SEO Moz, which led to an SEO consulting and software company. By 2007, Moz was generating revenue of $850,000 a year when Fishkin decided to drop consulting to become solely a software business.

The company began to grow 100% per year and by 2010, Moz was generating around $650,000 in revenue each month, attracting the attention of Brian Halligan, co-founder of marketing software giant HubSpot.

HubSpot wanted to buy Moz and was offering $25 million of cash and HubSpot stock – an offer almost five times Moz’s $5.7 million of revenue in its last complete financial year.

But Fishkin wasn’t satisfied. He believed a fast growth Software-as-a-Service (SaaS) company was worth four times future revenue and was confident Moz would hit $10 million by the end of that year.

Fishkin counter offered, saying he would be willing to accept $40 million. HubSpot declined.

New Plans Ahead

Instead of selling Moz, Fishkin raised a round of venture capital and started to diversify away from SEO tools into a broader set of marketing offerings. The further Moz veered away from its core in SEO, the more money his business began to lose.

By 2014, Moz was in full crisis mode, and Fishkin had begun suffering from a bout of depression. He decided to step down as CEO, describing his resignation as a “lot of sadness, a heap of regrets and a smattering of resentment.”

Fishkin became a minority shareholder in a company he no longer controlled where the venture capitalists had preferred rights in a liquidity event.

A Lesson Learned

In the ensuing years since turning down Halligan’s offer, HubSpot went public on the New York Stock Exchange and had been worth nearly 20 times as much.

Fishkin revealed that today, his liquid net worth is $800,000 – much of which he was about to spend on elder care for his grandparents. The Moz stock he holds may or may not have value after the venture capitalist get their preferred return. At the same time, Fishkin estimated HubSpot’s offer of $25 million in cash and HubSpot stock would now be worth more than $100 million (based on the increased value of HubSpot’s stock).

Fishkin’s tale is a cautionary reminder why the best time to sell your company is when someone wants to buy it – a story that is shared in his book Lost and Founder: A Painfully Honest Field Guide to the Startup World.

What if an offer was made for your business today? Would you be ready to sell? Would you regret if you said no?


Is your business creating maximum value?

Complete the “Value Builder” questionnaire today in just 13 minutes and we’ll send you a 27-page custom report assessing how well your business is positioned for selling. Take the test now:

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Leaving a Legacy: Why Some Sellers Choose ESOPs

Article written by Arielle Shnaidman and provided courtesy of 

While Employee Stock Ownership Plans (ESOPs) have long been good exit options for smaller companies, in the last few years larger middle market businesses have started considering ESOPs as an exit strategy as well. Companies worth hundreds of millions of dollars that could have easily sold to private equity firms have opted to go the ESOP route. An ESOP allows employees to buy an interest in a company while at the same time giving the owner liquidity. 

Alberto Toribio del Pilar, a managing director with the St. Louis, Missouri-based boutique investment bank ButcherJoseph believes owners of larger companies are more frequently considering ESOPs because they are becoming a more proven way to realize meaningful value at closing while implementing a significant employee retirement benefit. 

As a firm, ButcherJoseph has a niche focus on ESOPs. The key tax advantage of this exit option is the ability for a seller (under the right circumstances) to defer capital gains tax on the sale of their business to an ESOP. ButcherJoseph works with sellers to figure out how to best structure their deal to get those tax advantages based on the market value of the business. These types of deals require the business to borrow money — usually against the assets or cash flow of the business — which is why companies with many assets to borrow against or healthy margins are typically a good fit for an ESOP exit strategy. 

For example, Nation Safe Drivers (NSD), a roadside assistance company, recently completed an ESOP in Boca Raton, Florida with ButcherJoseph’s help. “We explored several exit strategies, and we were by far the most intrigued with Employee Stock Ownership Plans. Our company has tremendous potential, and we wanted to share this future success with the dedicated employees who will continue growing NSD,” said Andrew Smith, NSD CEO in the press release.   

Leaving a Legacy 

At first glance, the clear tax advantages of an ESOP exit option for business owners seems like reason enough to pursue this option. However, tax benefits are rarely the only reason sellers pursue this option. 

“Maximizing cash at close is typically not the most important element of the deal for sellers in most of these cases, because these folks already have money,” says del Pilar. “They think about the ESOP structure because it’s an amazing opportunity for their employees.” ESOPs are not often the most lucrative option for the seller. First, while offering fair market value, ESOPs typically cannot match the high multiples offered by private equity firms. Sellers of an asset-heavy business could also see a bigger return by dissolving the company and selling off the assets. 

But for business owners who have put their blood, sweat and tears into building a company for many years, money isn’t necessarily the only factor when it comes time to exit. 

An ESOP allows employees to secure a portion of their retirement investment through their work and ownership. For example, ButcherJoseph worked with a 35-year-old Midwest-based aviation business on an ESOP. 

The business could have sold off its assets, which were worth more than the business as a whole, but the owner wanted to make sure his employees were taken care of. He was a highly-regarded figure in his community with family in the business along with tenured employees and a large technical group of mechanics who took care of the aircrafts. He didn’t want his company bought and relocated. For these reasons, selling his business to a private equity firm or competitor was not an option. 

The owner of the business worked with ButcherJoseph for several months to structure the deal. This involved working out management incentive plans to create an environment for performance and ensuring the owner would receive a certain amount of income after close. After the seller realized value at closing, he positioned himself as a creditor by providing seller financing. As a lender he receives principal and interest for the remaining value of his business at closing. 

Potential Risks 

Typically, ESOPs work best for companies that have strong, tenured management teams that can run the business efficiently after the owner exits. Additionally, companies should have a good collateral base with healthy margins to borrow against for the ESOP structure. The underlying business should be relatively solid and not subject to peaks and troughs. 

While ESOPs are good exit options for many, deals can go wrong if they’re not structured correctly. If the deal is done at too high of a valuation, or companies violate covenants with lenders, the deal can go south. Finally, selling the business, but not transferring control is also a way to run a foul with the rules and regulations governing ESOPs. A true board or voting mechanism needs to be put in place to ensure proper corporate governance. 


 Is your business creating maximum value? 

Complete the “Value Builder” questionnaire today in just 13 minutes and we’ll send you a 27-page custom report assessing how well your business is positioned for selling. Take the test now:  

Sellability Score